1. APG Warns of Recent Convictions

***APG requests that anyone having information on this entity contact us. ***

Join APG today to receive full details and updates of future progress on this case, along with many others that result in law enforcement action. Take a step towards protecting your company's assets and call APG for membership information at 800.955.8815.
Source: NACM's Asset Protection Group

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2. Controversial Small Business Bill Moves to Senate
A bill introduced by Congressman Jason Altmire (D-PA) that will allow venture capital firms to be exempt from federal small business size determinations has cleared the U.S. House of Representatives and will now be heard by the Senate Committee on Small Business and Entrepreneurship.

Altmire contends that the bill will address the more than $60 billion in unmet capital needs for small businesses by updating the Small Business Investment Company (SBIC) and the New Markets Venture Capital (NMVC) programs. He says it will update the Small Business Act (SBA) while increasing the flow of venture capital to start-up companies and augmenting small firms’ ability to expand their operations and add new employees.

Critics have blasted H.R. 3567, the Small Business Investment Expansion Act of 2007, because it basically erases the work of the Small Business Administration to close a similar loophole that allowed Fortune 500 companies to win government contracts and be recorded by the federal government as small business contracts. The new exemption is almost a re-establishment of that loophole and means multi-billion dollar firms will be able to acquire a small business, and retain that small business’ status indefinitely for eligibility for government contracting programs.

“It is very disappointing that this Congress would even consider another loophole like H.R. 3567, which will divert even more federal small business contracts to big business,” said Lloyd Chapman, founder of the American Small Business League (ASBL).

The bill’s Title V section amends the definition of a small business in the Small Business Act from “independently owned and operated” to allow venture capital firms, banks and other large businesses to own 49.9% of the firm and still participate in $80 billon a year small business government contracting programs. The fear is that the average small business will be unable to compete against these extensions of large conglomerates.

The White House has sided with small business advocacy groups in condemning the bill.

“The Administration also strongly opposes the proposed change to the definition of a small business for venture capital investment,” the Executive Office of the President said in a statement. “This definition strips the elements of independent ownership and control that identify small business ownership under current law. Not only would this change be inequitable for actual small businesses, but it would be a step backward from our recent progress in addressing the misidentification of large firms as small businesses for Federal procurement purposes.”

The ASBL and other groups have also felt slighted because Congresswoman Nydia Velazquez (D-NY), chair of the House Small Business Committee, and co-sponsor of H.R.3567, has stood in opposition to the plans of the SBA, the Office of the Inspector General and the Senate small business committee to force Fortune 500 companies and other large businesses to relinquish federal small business contracts.
Matthew Carr, NACM staff writer

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3. Treasury Announces New Auditing Advisory Committee
U.S. Treasury Secretary Henry Paulson recently announced the creation of a new advisory committee that would examine the auditing industry as it relates to the nation's capital markets competitiveness. On the agenda for the committee include issues such as auditing industry concentration, corporate financial reporting and sustainability in the auditing profession.

"The Sarbanes-Oxley Act of 2002 enhanced financial reporting integrity, including mandating major changes affecting the auditing profession," said Paulson. "The committee has been chartered to develop recommendations as to what can best be done to sustain a vibrant auditing profession, a profession whose work is critical to investor confidence in our capital markets."

Paulson said that the committee will also examine the auditing industry's business model and expects to have the committee's recommendations by early summer 2008. Members of the committee represent both small and large investors, auditors, financial institutions, public company management, regulators and academia.

"Our markets are not immune to challenges," said Paulson. "We need to understand whether our markets are producing the high-quality audits and attracting the talented auditors we need. There are legitimate questions about the sustainability of the auditing profession's business model and concern about the high degree of auditor concentration among the largest public companies."

The committee's first meeting will take place on October 15 at 10:00am at the Treasury Department. All meetings will be open to public attendance and comment.
Jacob Barron, NACM staff writer

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4. Congress Recognizes Lack of Minorities in Financial Services Industry
The U.S. House of Representatives passed a resolution recognizing the low presence of minorities in the financial services industries, as well as the low presence of minorities and women in upper level positions of management in the industry.

According to a report by the General Accountability Office (GAO), the overall level of minorities in management positions in the financial services industry has not changed significantly between 1993 and 2004.

In 2005, minorities held less than 15% of board seats at Fortune 100 companies, while women held about 17% of board seats. African-Americans made up 9.8% of employees in the industry and about 7.4% of financial managers. Hispanics comprised 9.7% of employees, just 6% of managers and less than 2% of directors of Fortune 1000 companies. Asians were about 5.5% of industry employees and approximately 6.3% of financial managers in 2004.

"H.Con.Res. 140 calls on the public and private sectors of the financial services industry to recognize that there is untapped human talent that could benefit the financial services industry in America," said Rep. Gregory Meeks (D-NY), author of the resolution. "There is no greater resource than human capital. In this increasingly globally competitive environment we must maximize the potential of all our citizens if we are to maintain global leadership."

The resolution expresses that Congress senses that measures should be taken to increase the demographic diversity of the financial services industry, though it does not make any suggestions beyond encouraging financial institutions to partner with organizations that promote opportunities for young women and minorities, as well as inner-city schools.
Matthew Carr, NACM staff writer

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5. Avoid Exposure: Creating a Defense Against Preference Payments
According to Robert Mercer of Powell Goldstein, the process for a company trying to protect itself from preference and fraudulent transfer exposure can be a tightrope walk. There must be balance between what makes the most business sense for the grantor's firm, while not destroying that firm's access to powerful tools like the ordinary course of business defense.

"There is one thing that I have learned from representing trade creditors and that is the absolute frustration at dealing with fraudulent transfers and preferences," Mercer told attendees during "Preferences and Fraudulent Transfers: The Basics and Beyond," part of NACM's Audio Teleconference series.

A preference is a payment from a customer on an existing debt during the 90 days before the customer files bankruptcy, provided that the customer is insolvent at the time of the payment. Fraudulent transfers are a payment from any entity other than the company's customer at a time when such an entity is insolvent, such as when a corporate affiliate of a customer pays that customer's invoice. In either case, the ultimate goal is maintaining a "business-as-usual" course.

"The first thing is, when looking at the payments that were received during the 90 days before your customer filed for bankruptcy, you want to see if those payments were consistent or were ordinary when you compared them with the historic payment pattern before your customer filed for bankruptcy," said Mercer. "The main focus is how many days after the invoice day do you normally receive payment."

The recent change in the Bankruptcy Code has made it substantially easier for firms to protect themselves against preference and fraudulent transfer exposure. If a customer's underlying bankruptcy was filed on or before October 17, 2005, to establish an ordinary course of business defense, a firm had to prove that the payment received in question was "ordinary" in respect to the customer's historical payment pattern and with that of the relevant industry. Now, firms just need to prove one of those elements, with 95% of cases decided by the first-mentioned prong.

According to Mercer, companies and credit department members need to think about minimizing preference exposure, while maximizing the ordinary course of business defense, by approaching the matter in three separate phases: pre-bankruptcy, bankruptcy and receiving of the demand letter. But being practical up front can be the most effective and can avoid a lot of headaches later.

He noted that the single most effective way to reduce exposure on the front end is by simply getting paid in advance, not only by a customer that a grantor feels might be financially distressed or possibly at risk for filing for bankruptcy, but for all customers if possible.

"Why is that so important?" said Mercer. "Because, if you're getting paid in advance, you're not getting paid on a debt, so it will not constitute a preference. Second, if you're getting paid in advance by your company's customer, you won't have any fraudulent transfer exposure either."

Though that approach is extremely difficult, and not likely to be obtained across the board, the next best practical solution for a grantor is to apply customers' payments in a way that strengthens the ordinary course of business defense. For example, a firm has three outstanding invoices of $100,000 each from a particular customer: one that is 30 days old, the second that is 60 days and the third is 90 days old. When that customer calls and says they are going to send a payment of $100,000, and in fact they do, more than likely, 99% of companies will allocate that payment to the 90 days invoice.

Mercer also advised that companies don't apply payments too soon, because that payment can also be considered a preference.

Other simple tactics like making a phone call instead of writing a collection letter can also keep a company from destroying its chances of protecting itself from making a preference repayment.

Mercer continued to lay down basic strategies like weighing the risks of changing payment methods with a customer, for example changing from a check to a wire transfer, because this dilutes that ordinary course of business defense. He also suggested that a firm never let a customer dictate how a received payment is to be applied.

Before there is even the hint of bankruptcy, there are even more tools companies can use to set up ramparts. In terms of credit documents, Mercer suggested that all guaranties include a provision that for whatever reason, if a debtor's payment gets disgorged, through a preference lawsuit or otherwise, the guarantor remains liable. He said that some courts have already held that this is the case.

"But you don't want there to be any room for doubt," said Mercer. "You need to have a provision in your guaranty that says that the guarantor is responsible for making sure you get paid, and almost as importantly, that you stayed paid."

The final pieces of building an initial defense so that a company won't have to be faced with painful preference repayment demands is to ensure in a letter of credit that the issuing bank is using its own funds, and not the customers' funds, to make payments and that credit applications contain an arbitration provision.

During the bankruptcy phase, Mercer suggested that a company might not want to rush ahead and file a proof of claim, especially if that company has large preference or fraudulent transfer exposure. If a company files a proof of claim, it waives the right to a jury trial, and that may lead to not being able to have the case transferred from bankruptcy court to district court.

And finally, after companies have received a demand letter, Mercer suggested that a company might want to challenge the insolvency of a debtor, because such a presumption can be rebutted. Once insolvency is rebutted, it is more expensive for the trustee to pursue the litigation and will encourage the trustee to settle because it could hurt all of the trustee's avoidance actions and may require the trustee to retain an expert to establish insolvency.
Matthew Carr, NACM staff writer

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6. Euler Hermes Chief Economist: Difficult Business Conditions Lie Ahead
While the trade credit sector has seemingly weathered the storm brought on by the recent credit crunch, the Chief Economist for the nation's leading trade credit insurer sees a more challenging business environment ahead.

In his latest commentary and analysis on the nation's economy based upon a nationwide survey of credit managers, Euler Hermes ACI Chief Economist Daniel C. North said he saw little change in the U.S. manufacturing and service sectors. "The [survey] data showed mixed conditions, since small gains in the service sector were offset by modest losses in the manufacturing sector," he stated. "While this month's data does indicate a slight decay, we are seeing continued economic expansion in these sectors."

As credit markets continue to face difficulties related to the subprime mortgage crisis, trade credit has not seen the same effects. "So far, trade credit conditions seemed to have weathered the storm which recently roiled the public debt markets," said North. "The turmoil has been only one of several indicators which have many economists starting to feel increasing discomfort about the economy's future. Slower growth and more difficult business conditions almost certainly lie ahead. The credit managers who have done so well keeping problems to a minimum up until now might find a more challenging environment in the rest of 2007 and into 2008."

According to North's analysis, the manufacturing sector showed losses of 1.3% in September. The two largest drops were the accounts placed for collection component and the disputes component, and comments from credit managers were quite telling. North commented, "Indeed, one [survey] respondent from the machinery industry seems to be encountering particularly bleak conditions, saying, 'Had more companies just closing their doors and walking away. No assets to recover.' Another reported that 'Orders are being canceled or modified after the initial order.'"

Meanwhile, the nation's service sector index showed gains 0.6% for September as declines were very modest. However, North said that despite mostly positive results in the survey, "the few negative comments received centered on the housing industry," demonstrating continued weakness in that sector.

On a year-over-year basis, the combined manufacturing and service sectors showed declines of 2.3% — a further telltale sign of an economic slowdown. "The data indicates that, as far as credit managers are concerned, the economy is definitely deteriorating, but not by much, and at a rather slow pace," North concluded.
Source: Euler Hermes ACI

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7. Report: IRS Mishandling E-Tax Filers
A recent report by the Treasury Inspector General for Tax Administration (TIGTA) found faults in the screening and monitoring methods used by the Internal Revenue Service (IRS) to ensure the security of taxpayer information filed electronically. Specifically, the report notes that the IRS failed to conduct credit checks, adequate background checks, citizenship checks and also failed to effectively monitor ongoing compliance.

The report specifically referred to the IRS' ERO program, which stands for Electronic Return Originators and includes businesses that file and prepare tax returns electronically. In 2007, 260,000 EROs submitted electronic tax returns on behalf of 55 million taxpayers.

"Without adequate screening and monitoring of electronic return originators, the IRS doesn't know who has access to confidential taxpayer data," said Senator Max Baucus, chairman of the Senate Finance Committee. "The IRS has failed to follow its own procedures, putting millions of American taxpayers at greater risk of inaccurate returns, stolen identities and fraudulent refunds."

"TIGTA has studied the ERO program three times in the past, but the IRS has yet to resolve these issues," said Baucus.

TIGTA offered nine recommendations to improve the current state of e-tax administration and the IRS has pledged corrective action. A full copy of the report is available from the TIGTA website (www.treas.gov/tigta).
Jacob Barron, NACM staff writer

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8. M&A Activity Booming Despite Market Concerns
Despite debt market turmoil, 41 deals representing more than $2 billion in merger and acquisitions activity in the debt collections/accounts receivable management (ARM) industry took place in the third quarter of this year.

"The recent liquidity crisis in the debt markets has not made any significant impact on deals in the ARM industry," said Michael Lamm, Associate at Kaulkin Ginsberg. "There have been fewer deals, but they represent larger transactions, as strategic buyers are being competitive with financial buyers for smart investments."

ARM M&A activity has been at consistently high levels over the last few years, rising from 43 deals worth $1.44 billion in Q3 of 2004, to a peak number of deals of 59 for $1.63 billion in 2005, to the current 2007 levels. Significant deals like the acquisition of AllianceOne by Teleperformance, and MedAssist by Firstsource Solutions, marked just some of the big dollar deals done in the third quarter of this year.

However, the long-term effects of the summer crunch and rate cuts by the Federal Reserve Board are still murky.

"It's too soon to know if volatility in financial markets will have a residual impact on transactions in the ARM industry," said Lamm. "However, our knowledge of pending transactions in the market and the number of interested buyers out there suggest that we should continue to experience a robust level of deal activity at least into 2008."

And the ARM industry hasn't been alone in big-ticket deals.

Fitch Ratings reported that over the past 18 months, the refining sector of the oil and gas industry has been undergoing it's own M&A boom, despite record high valuations of assets. The drivers in both the United States and Europe for the trend in consolidation is that it is still cheaper to purchase an existing refinery than to build a new one, while sellers have been motivated to exit while maturities are high.

In North America, a significant portion of downstream M&A activity is centered on the Canadian Oil Sands as firms used U.S. refineries as bargaining chips to gain access to Oil Sands reserves, either through joint venture, acquisition or some other arrangement. In Europe, strategic buyers, like national oil companies, monopolized the M&A activity.

And Dow Jones' Venture One reported that in the third quarter of this year, 90 venture-backed companies announced more than $10.5 billion in M&A transactions, an increase of 31% over last year and the highest quarterly amount since 2000.
Matthew Carr, NACM staff writer

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9. Immigration Issue Bringing Together an Odd Coalition
The Department of Homeland Security decided that its new policy on immigration was so simple and straightforward that any review of its impact was unnecessary. The law requires that employers verify each and every worker's social security number and to take action if it is determined that there is a discrepancy. The law seems simple enough but the reality is much more complex. The business community points out that compliance with this law will cost upwards of $100 million to resolve the discrepancies and that this hardship will fall especially hard on small business. The fact is that while this law has been on the books in some form for several years, it has been very loosely enforced. Suddenly reversing course and demanding rigid compliance is a shock that would jeopardize the survival of many businesses. It will also doubtlessly lead to some highly discriminatory practices as business people become very reluctant to hire people they consider potential problems. There are concerns about the ability to find sufficient labor in many industries as well. In short, the objection is that the intent of the law is perhaps commendable but that the execution has been ham-handed and ignores the very real challenges.

Armada Strategic Assessment
It has been suggested that instituting this kind of draconian law has been a deliberate attempt by the Bush White House to provoke a reaction to the immigration issue. By forcing the problem to a head, it is expected that various recalcitrant groups will be forced to come to grips with a need for a comprehensive solution. It is hard to determine just what prompted this legislation, but it has attracted a very unusual collection of opponents — labor unions, business groups and immigration groups — all united in opposition to this heavy handed and punitive approach to the immigration question. The impact this policy has on the U.S. business community is significant enough, but the impact on Mexico and other Latin American nations has been considerable and largely ignored. It is especially ironic that the DHS is so intent on pursuing a policy that leads directly to destabilization in a neighboring state. If the immigration issue brings an overtly hostile government to power in Mexico, the impact on U.S. national security will be extremely serious.
Source: Armada Corporate Intelligence

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10. Online Job Ads Up in September, The Conference Board Reports
In September there were 4,270,000 online advertised vacancies, an increase of 165,200 or 4% from the August level, according to The Conference Board Help-Wanted OnLine Data Series™ (HWOL). Online advertised vacancies were up (17.5%) over the year (September '06 — September '07). There were 2.78 advertised vacancies online for every 100 persons in the labor force in September.

"The growth rate in the number of online ads has moderated in recent months from what we were seeing in early 2007 and some of the growth is reflective of the continued shift to online job advertising," said Gad Levanon, Economist at The Conference Board. "Looking regionally, the more 'mature' areas in terms of internet usage, like the West and East coasts, where online job advertising has been popular for some time, the rate of growth has slowed. In many of the smaller metro areas, and where online job advertising has lagged behind the largest metro areas, the growth rates continue to be very strong."

In September, 2,934,100 of the 4,270,000 unduplicated online advertised vacancies were new ads that did not appear in August, while the remainder are reposted ads from the previous month. The 4% increase in total ads reflected a 6% increase in new ads and 1% increase in reposted ads. Over the year (September '06 — September '07) total ads and new ads rose 17.5% and 22.6%, respectively.

Online job demand in September continued to be above last year's level in eight of the nine Census regions, but there were substantial variations from region to region. The New England region, which continues to have one of the highest ads rates (3.65 ads per 100 persons in the regional labor force) declined for the second month (-5% in September and -6% in August). Recent Consumer Confidence readings on the present and future economic and employment outlook in this region have also cooled over the last few months. The Pacific region, which includes California, Oregon, Washington, Hawaii and Alaska, also has a high ads rate (3.62 ads per 100 labor force), and was up a modest 8% over the year. The Mountain region, which has the highest ads rate in the nation (3.86), was up 29% from September '06 to September '07, substantially above the national average. The central regions of the country experienced the largest over the year gains with the West South Central region leading (up 43%), followed by the East North Central region (up 28%) and West North Central region (up 25%). The South Atlantic region was up 13%.

Alaska posted 4.7 vacancies for every 100 persons in the state labor force, the highest rate in the nation, moving up from second place last month. Nevada (4.64) and Colorado (4.52) were close behind in the number of advertised vacancies when adjusted for the size of the state labor force. Other states in the top five included Oregon (4.41) and Arizona (4.29).

Online advertised vacancies in California, the state with the largest labor force in the nation, totaled 666,000 in September. The volume of online advertised vacancies in California was significantly above the next highest states, Texas (374,500), New York (289,700) and Florida (247,800).

"Although one cannot infer that the occupation or geographic location of unemployed persons matches the occupation or geographic location of the vacancies, looking at the number of unemployed in relation to the number of advertised vacancies provides an indication of available job opportunities for the unemployed," said Levanon. Using the latest unemployment data available from the Federal Bureau of Labor Statistics (BLS) and computing the supply/demand ratio (unemployed/advertised vacancies), the states with the most favorable (e.g., lowest) supply/demand rates included Montana (0.50), Idaho (0.69), Wyoming (0.73) and Delaware (0.75). There were 14 states where the supply/demand rate was less than 1.0, indicating that the number of unemployed workers was fewer than the number of online job ads. For the nation as a whole, the comparable supply/demand rate was 1.73 with the number of unemployed persons exceeding the number of online advertised vacancies. States where the number of unemployed persons looking for work significantly exceeded the number of online advertised demand included Mississippi (4.46) and Michigan (4.25), Kentucky (3.23) and Indiana (3.10).

Healthcare practitioners and technical workers (334,500) and management positions (303,400) continue to be top occupations with a significant number of ads posted online. "These are also, on average, among the highest paying occupations," said Levanon. According to the latest federal hourly wage data, wages average above $44 an hour for management positions and about $30 an hour for healthcare practitioners and technicians.

Also in high demand are office and administrative support (268,500), business and financial occupations (257,300), and computer and mathematical (250,300) occupations.

The top metro areas in September with around 6 advertised vacancies per 100 persons in the local labor force included Austin (6.75) and San Jose (6.25) and San Francisco (5.98). These same metro areas are also among the top ten areas in the country where the number of unemployed persons was below the number of online advertised vacancies (supply/demand rate). Salt Lake City was number one with a 0.50 supply/demand rate. The number of unemployed persons looking for work was fewer than the number of advertised vacancies in 9 of the 52 metro areas for which data is reported separately.

Two of the nation's largest metropolitan areas, New York and Los Angeles, were first and second in the absolute volume of advertised job vacancies in September, with 297,700 and 241,600, respectively.
Source: The Conference Board

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